TWO of the Cabinet’s economic managers signaled on Tuesday the Executive will stick to its guns in pushing a cash-based budget for 2019 despite a standoff with Congress, as business groups weighed in on the matter, taking Malacanang’s side and warning of the perils of a reenacted appropriations law.

Budget Secretary Benjamin Diokno, reached by phone, said it’s the lawmakers who should persuade themselves to pass the proposed 2019 cash-based budget, having earlier approved the shift from an obligation-based budget as part of reforms. The unprecedented act of rejecting the President’s budget, in a bid to force the Executive to increase it, is fraught with risks for the economy’s growth and credit rating once the deficit widens, he said.

The Executive, meanwhile, has found an ally in the Senate, which Budget chief Diokno earlier described as at least “friendly” to the cash-based budget.

Senate President Tito Sotto III confirmed Tuesday night that senators meeting in caucus agreed to back the cash-based budgeting in the 2019 national budget endorsed by Malacañang.

Sotto said Senate subcommittees will resume their task of reviewing the budget bill but will focus on the proposed National Expenditure Program earlier submitted by the Executive.

The Senate President, however, allayed concerns that passage of the budget bill will still encounter further delay in the Senate. “Delay? Maybe,” Sotto said, adding: “The ball is with the House of Representatives; we support the Executive’s budget proposal.”

Deadlock looms

Senator Joel Villanueva, in a text message to BusinessMirror, said he supported cash-based budgeting “because it is a way to improve the utilization of funds by government agencies which has long been a problem of our bureaucracy.”

“I think the House of Representatives and the Department of Budget should continue the conversation so that the misunderstanding and confusion on the shift to cash-based budget scheme will be addressed,” Villanueva added.

He, however, indicated a potential Senate-House deadlock. “It appears the HOR (House of Representatives) will not adhere to DBM’s budget reform,” the senator told BusinessMirror.

Diokno revealed the Department of Budget and Management (DBM) is also looking at the possibility of a re-enacted budget and later on filing a supplemental cash-based budget, sometime in mid-2019, before a “friendlier” Congress. Diokno’s dismay over the lawmakers’ stance was echoed by Presidential Spokesman Harry Roque, who decried the “unprecedented” act of the House rejecting outright the President’s budget.

“Why should I convince them [House members]? It’s the right thing to do. They should convince themselves,” Diokno said in a phone interview.

Diokno added that the congressmen wanted to return to the budget to them because the lawmakers wanted a higher budget, noting that 2019 is an election year.

He said this intent by Congress to increase the budget was expressed during his meeting with Davao City 1st District Rep. Karlo Nograles, chairman of the House Committee on Appropriations, and Senate Finance Committee Chair Loren Legarda on Tuesday morning.

Diokno said it is the congressmen who wanted the increase to happen.

The House earlier suspended budget deliberations until further notice in line with its opposition to the cash-based budget system, which lawmakers said resulted in “budget cuts” in key agencies.

However, Diokno said, it is “not acceptable” for the Development Budget Coordination Committee (DBCC) and to the President to increase the budget, aside from the fact that the Constitution is very clear that the Congress cannot increase the budget.

“They want to increase the budget as submitted by the President, thereby, increasing the deficit above 3.2 percent of Gross Domestic Product,” Diokno, who is also the DBCC chairman, said in a message, noting that the scenario of Congress returning the President’s budget was unprecedented.

“They wanted to return the budget so that we will be able to increase the deficit but that has never happened in the entire life of the Republic,” he said.

Neda’s stance

Despite the House opposition, the National Economic and Development Authority (Neda) maintained the government is better off using a cash-based budget.

In a cable television interview on Tuesday, Socioeconomic Planning Secretary Ernesto M. Pernia said it would be disadvantageous to government if this year’s budget is re-enacted for next year.

Pernia said a reenacted budget, “will be more discretionary rather than rules-based, well, for the President which is not good for Congress. So we should really try to avoid that and so they should just come around and accept cash-based budgeting,” Pernia said.

Pernia pinned his hopes on the Senate of the Philippines, which he described as “more friendly” when it comes to cash-based budgeting.

Earlier, Pernia said the proposed P3.757-trillion 2019 National Budget is crucial for the government’s Build, Build, Build program.

Pernia said he supported the 2019 cash-based budget since Diokno presented it to the economic team.

He added the shift from multi-year obligations-based to annual cash-based budgeting in the fiscal year 2019 fosters discipline among implementing agencies and encourages prudent and efficient use of limited resources.

Neda noted that reducing the validity of appropriations to one year from two years is part of the change in the budgeting system embodied in the Budget Reform Bill being pushed by the DBM with the Department of Finance, Bureau of the Treasury, NEDA, and Commission on Audit.

This is also part of the legislative agenda in the Philippine Development Plan 2017-2022, the country’s blueprint for development

Credit downgrade

Diokno disclosed the International Monetary Fund had told them the country’s deficit next year should be 2.6 percent, but he said they stood firm and stuck to 3.2 percent so as not to constrict the momentum for the Build, Build, Build infrastructure program and government spending money for education, healthcare and social protection.

That said, expanding the deficit any further by not adopting a more prudent cash-based budget for 2019 would have adverse results, he added.

“We told them (Nograles) it won’t look good because it will have an implication to the international community because for example, if you increase the deficit to 4 percent then it would look like you have a big deficit, then there will be loss of confidence which may lead to a [credit] downgrade and higher interest rates,” he said.

If the Congress is not persuaded to support the proposed 2019 cash-based budget, Diokno said they are preparing as early as now for a re-enacted budget by reviewing the 2018 budget line by line, and identifying which projects will be completed and which will not be completed.

Diokno has yet to report to the President on the implications of a re-enacted budget after DBM is done with its study. “We are in that process right now and we will submit to the President a report on the implications of a re-enacted budget and how do we cope with it,” he said.

But he said that if the budget is re-enacted, they will definitely submit or a supplemental budget on the second half of 2019 under a “friendlier Congress.”

“We will file definitely [a supplemental budget] if the budget is re-enacted. We will have huge savings and it would be such a waste if we won’t be able to use it so we will file for a supplemental [budget],” he said.

Nonetheless, he clarified that this does not mean that the government is already sure that the budget will be re-enacted.

“We’re not saying it’s going to be re-enacted. It’s just that we are preparing for the contingency,” he said, noting that even Nograles doesn’t want a re-enacted budget. “We’re weighing options and getting ready.”

Palace-Congress ties in limbo

With the impasse on the proposed budget, Malacanang admitted that the change in leadership “brought in a different kind of relationship” between the legislative and executive branches.

“Let’s just say, with the budget being rejected by Congress, we don’t know what ties we have with the House now,” Presidential Spokesman Harry L. Roque, Jr. said in a briefing. “How else do you explain, Congress refusing to act on the President’s budget?”

He added the House should be the one to explain the sudden outright rejection of the President’s budget. “So I think the President needs an explanation, very clear explanation on why people who may considers as his closest allies have rejected it outright.”

Diokno earlier said he doesn’t understand why both houses of Congress changed their minds on cash-based budgeting, which he said is a necessary “revolutionary” shift to fast-track the completion of projects.

At the House Appropriations Committee hearing with the DBCC, lawmakers earlier expressed concern over the “slashed budgets” of key agencies and that the proposed 2019 cash-based national budget at P3.757 trillion was P10 billion “lower” than the current P3.767 trillion General Appropriations Act for 2018.

Business leader worried

Philippine business leaders on Tuesday pressed lawmakers to adopt the cash-based budget, as they warned a reenacted appropriation might put government programs at risk.

In interviews with the BusinessMirror, business executives said they oppose the possibility of a reenacted budget for next year, as lawmakers are now floating it as imminent. Budget hearings in both the House of Representatives and Senate have been suspended until further notice.

“Normally we do not want [it], but worst [case] scenario is what [Budget Secretary Benjamin A.] Diokno said that it is okay, to live with, maybe so. We have no basis to know if a reenacted budget will work, but in principle we do not like a reenacted budget,” said Sergio R. Ortiz-Luis Jr., president of the Philippine Exporters Confederation Inc., in a mix of English and Filipino.

For him the principle is simple: the budget allocation for this fiscal year will not fit the needs for another fiscal year. Ortiz-Luis warned the government might incur leakages if the budget is not calibrated with the expenditure plan for 2019.

“It is like you budgeted for something, [but] you used it for another. The programs are different, the [target dates of] completion are different, the continuation [of projects] are different, there might be a leakage,” Ortiz-Luis explained.

George T. Barcelon, chairman of the Philippine Chamber of Commerce and Industry, asked lawmakers to adopt the P3.757-trillion cash-based budget proposed for next year, rejecting any notion of reenacting the General Appropriations Act (GAA) for 2018.

He said legislators have a point in questioning what will happen to contracts whose payments are not immediate under a cash-based scheme. However, Barcelon urged them to consider the administration’s objective in pushing for this budget measure, which he said is to make spending more efficient and targeted.

“On the point of the DBM [Department of Budget and Management] the drawdown of our budget at times is less than 20 percent to 25 percent. That is what I think the DBM wants to see: that you accomplish your plans, that you want to have this project and you have this money allocated, you use it,” Barcelon argued.

“In my perspective legislators have to look at it [cash-based budget] and be enlightened. They do have valid points, but from the point of Secretary Diokno we want to get things moving and moving as per planned. The money is there. We cannot afford to utilize again the 2018 GAA,” he added.

Barcelon said it will be difficult for the government to complete its public infrastructure and social programs if Congress opts for a reenactment. He added this is the best time for the government to utilize cash-based budgeting as it completes its big-ticket public infrastructure listed under the “Build, Build, Build” program.

“I support that stand that [lawmakers should] do make due diligence on the new budget,” the business leader concluded.

The GAA will finance only programs and projects that are for implementation, completion and payment within the fiscal year under cash-based budgeting. The scheme, moreover, provides for an extension of three months for the budget to be used up.

Obligation-based budgeting, on the other hand, includes in the GAA programs and projects whose implementation, completion and payment could be made beyond the fiscal year. This is provided they are obligated within the fiscal year by contract or other methods of incurring obligation.